nikkei 225 potential bullish breakout above 20000 2692452017

Short-term Technical Outlook (Thurs, 11 May 2017) (Click to enlarge charts) What happened earlier/yesterday The Japan 225 Index (proxy for the Nikkei 225 futures) had […]

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By :  ,  Financial Analyst

Short-term Technical Outlook (Thurs, 11 May 2017)

Japan Index (daily)_11 May 2017

Japan Index (1 hour)_11 May 2017(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) had rallied towards the significant short-term technical level of 20000 on Tues, 09 May in the U.S. session. An attempt to break above 20000 failed (printed a high of 20025) triggered by a negative news flow where the U.S. FBI director was dismissed by U.S. President Trump.

A can of “political intrigue” had been opened to due to the timing of the sudden dismissal of FBI director Comey as he was leading an investigation into Russian’s potential involvement in tapering the outcome of the last U.S. presidential election that led to a Trump victory.  A “mini bout” of risk aversion took place as concerns had started to stir on the implementation of Trump’s proposed bold tax cuts plan (a much needed catalyst to drive the global stock markets higher) . The split between Republicans had deepened and some prominent Senators had criticised the timing of Comey’s dismissal.

However, the recent price action of Index and the USD/JPY (one of the proxies to gauge risk aversion) had remained resilient. Thus, it is likely that a “major risk off effect” to trigger a medium-term (1 to 3 weeks) decline in risk sensitive assets may not occur yet at this juncture as per highlighted by the key elements below.

Key technical elements

  • Despite a retreat from the 20000 level as seen on the Index, its daily RSI oscillator has not flashed any bullish exhaustion signal such as bearish divergence. In addition, it still has room to manoeuvre to the upside before it reaches an extreme overbought level of around 84 since May 2015 that led the Index to record its recent significant swing high of 20950 in June 2015. These observations suggest that medium-term upside momentum of price action remains intact (see daily chart).
  • In the shorter-term, the Index has continued to evolve within a bullish ascending channel in place since 19 April 2017 low with its lower boundary acting as a support at 19850.
  • Based on the Elliot Wave Principal and fractal analysis, the Index is likely undergoing an extended minor degree bullish impulsive wave 1 from the 18205 low of 17 April 2017. The potential end target of the wave 1 stands at 20200 which also confluences closely with the upper boundary of the aforementioned short-term ascending channel (see hourly chart).
  • Based on intermarket analysis, the USD/JPY has staged a bullish breakout above the 113.50/114.00 short-term resistance zone. Technical elements are still bullish that advocate for a further potential push up towards 115.10 resistance (61.8% Fibonacci retracement of the decline from 15 Dec 2016 high to 17 Apr 2017 low & the range top in place since 19 Jan 2017) holding above 113.50 key short-term support. Given its direct correlation with the Nikkei 225, a further potential up move in USD/JPY is likely to trigger a similar rally in the Nikkei.

Key levels (1 to 3 days)

Intermediate support: 19850

Pivot (key support): 19780

Resistance: 20200

Next support: 19480


Therefore as long as the 19780 short-term pivotal support is not surpassed, the Index is likely to see a potential bullish breakout above 20000 for a further rally to target the next resistance at 20000.

On the other hand, failure to hold above 19780 may invalidate the preferred bullish scenario to open up scope for a deeper slide towards the 19480 medium-term pivotal support.


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